There’s something curious about the human imagination. Confronted with unprecedented events of unfathomable scale, it seems to find the shocking reality insufficiently interesting and reaches instead for even grander, more cosmic explanations of what’s going on. The financial crisis is precisely that sort of moment. It’s a vast drama, with consequences that will ripple steadily from immediate economic hardship to changes in short-term political fortune to a broad recasting of the way our economies and societies work. But that’s not enough, apparently, for the drama queens and kings of our political and media establishments. Hastily, they’ve constructed a grand historical narrative in the last couple of weeks, composed largely of overarching myths that are in danger of hardening into conventional wisdom.
Gerard Baker goes on to poke holes in every grand narrative that’s emerged from this situation. Capitalism’s failure?
As I’ve argued before, the current collapse owes as much to government intrusion into the free market (the abominable hybrid of Fannie Mae and Freddie Mac; the regulatory requirement that banks lend money cheaply to those who couldn’t afford to repay it) as it does to the madness of free market savagery. There’s been precious little financial deregulation in the past ten years. The one big piece of liberalisation – the abolition in 1999 of Depression-era legislation that separated commercial and investment banks – has been a lifesaver, enabling investment banks to save themselves by merging with, or becoming, retail banks.
John McCain should commit that paragraph to memory, possibly verbatim. (What? Stealing prose from Brits didn’t hurt Joe Biden’s career.)
Baker on the alleged triumph of the European model:
Ireland’s bold move to protect depositors is producing a competitive run on other European banks and seems to have mortgaged the entire eurozone to an open-ended commitment from a government that is already fiscally challenged. Over to you, Mr Sarkozy and Mrs Merkel.
A bracing read.
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